I am often asked this question by new prospective hard money lenders. Borrowers come in all shapes and sizes, and most of them cannot obtain a mortgage loan at their local bank. These borrowers range from first-time homebuyers, developers, speculators, to real estate investors. For private mortgage lending, you will probably do best by loaning to experienced real estate investors, when possible.
The reason is that most real estate investors are seeking short term loans. They see profit in flipping homes, as opposed to homeowners or landlords, who are seeking longer term loans. And, you simply do not want to tie up your money for long periods of time.
Additionally, real estate investors typically are repeat borrowers. They tend to buy many pieces of property, hoping to make their money work for them repeatedly. They want to develop relationships with hard money lenders and brokers that know their real estate track record, making the vetting process easier for both the hard money lender and the real estate investor-borrower.
Real estate investors are usually buying properties below market and adding value by repairing the properties. Thus, while the initial loan to value may be 65-70%, within a short period, the loan to value is more like 50%, due to the upgrades and repairs made to enhance the value of the property.
Lastly, real estate investors will pay the higher rates, since they know the length of time holding the loan will be short. This means more profit for the hard money lender.
So, real estate investors should be the bulk of the private money investor’s business; however, the fact remains that the landlord or homeowner business are still plentiful and should not be avoided. With the new rules guiding conventional lenders, there is a long wait before borrowers with a BK, short sale or foreclosure can once again get a loan at their local bank.
Statistics show that real estate investors make up over 20% of all home sales, so there are many opportunities for hard money lenders to lend to real estate investors. For more information and to see if you or your client you’re a good candidate for a hard money loan, feel free to give me a call any time! 760-845-9035